Prepare for Fiscal Doom

John Ransom

11/15/2012 12:01:00 AM

OK, perhaps doom is too strong a word, but then again, perhaps it is not.

In either event, 2013 is not shaping up to be a banner year for the economy. And it’s not just or even mostly because of the fiscal cliff.

Our financial system is not stronger now than it was in 2008 when it finally collapsed under the weight of crashing real estate prices that fell all the harder because they were ballasted by plenty of government guaranteed debt.

In fact, prepare right now for the Next Great Bailout. Because this time around, the federal government, via Dodd-Frank, has pre-announced that- come what may- they will bailout the financial system anytime they feel like it, no act of Congress necessary.

I’m getting a feeling that both the Obama administration and the loyal opposition are concerned about an economy that they know is ready to screech to a halt in 2013.

That’s why they are pushing the fiscal cliff story so hard with their known associates at the Congressional Budget Office.

Certainly they know what the Fed knows; the Fed that has said it will keep interest rates at sub-zero until evolution produces men who can produce hundred dollar bills via extra sensory perception. The Fed, you see, is gravely concerned about the next year’s GDP outlook. And they should be

And because even government economists recognize that evolutionary change- like men who can conjure money out their hope and change gland- takes quite a bit of time, the knuckleheads at the Fed- who have no other plan than producing more hundred dollar bills- are sore afraid.

They are trying to buttress Obamanomics with paper dollars even as the columns that are needed to truly support the economy, jobs- that’s where OUR money comes from- comes crashing in… again.

“[N]o matter what you might hear in the mainstream media or from the White House,” say our friends at Political Calculations, “this isn't a situation that developed overnight because of the aftermath of Hurricane Sandy or the so-called ‘fiscal cliff’. Recessionary forces have been at work in the U.S. economy for many months now.”

All of us should be afraid. Sore or otherwise.

“Even though a painful correction is necessary,” writes Peter Schiff, “nobody in power wants it to happen while they're in the driver's seat. So, Bernanke will stick with his well-rehearsed lines: the money will flow until there is ‘substantial improvement’ in unemployment.”

In true political fashion, Obama and the squishy, moderate, Blame-the-Tea-Party portion of the GOP are ready to shift the responsibility for these failed policies produced on both sides of the aisle, by using the fiscal cliff as a ready-made excuse for 30 years of fiscal makeshifts and evasions; evasions and makeshifts that they created.

As our contributor Mike Shedlock pointed out yesterday, Japan’s economy is now contracting at a 3.5 percent annualized rate. Japan it might be remembered came up with the whole “free money- for everyone- 4-EVER!” concept. They have been trying to jumpstart their economy for a decade that way.

In that time China- still a communist country- has vaulted over Japan as the Asian economic power that matters most. And there is only one explanation for a communist, semi-medieval country like China to overtake a supposedly free and prosperous Japan: There are more Ivy League-educated, modern, Keynesian economists in charge of Japan, than in China.

Still China will catch up to Japan and the US soon. China has the same problems that Japan and the US have. They are just earlier in the cycle than us.

In China “free money- for everyone- 4-EVER!” rules the roost even more firmly than it does in the United States, because they have a ton of money.

Where do you think we are getting our money from?

And then there is Europe.

Name one constructive thing that Europe has done in the last hundred years.

Where do you think John Maynard Keynes of Keynesian economic fame came from?

You got it: Europe.

These Keynesians are in control of everything all over the world. They are unconcerned with producing wealth and only concerned with producing money. Wealth and money, you see, are not the same things. We are not producing wealth as fast as we are producing money.

When you produce money without wealth the thin veneer holding the economy together eventually bursts like a balloon does when over inflated.

That’s what’s in store for 2013; or maybe- if we are lucky- we can put it off until 2014 or 2015.